Can Franchise Fare Better in these Tough Times?

We weren’t surprised when we recently read that the accommodation and food services sector is being hit by a wave of insolvencies. The ABC recently reported that ASIC says more than 1,000 external administrations have been appointed this financial year to March 25 – double the amount from the same time two years ago and 300 more than in 2022. The business owners we meet, especially those in the food sector who tell us how badly they are struggling and many facing the very real threat of closing.

Any business which is hit at every part of the business chain, like the food industry today, would be struggling to survive. The Sydney Morning Herald notes that the industry is affected by the same combined crunch as their customers, inflation plus the cost-of -living crisis. This means the cost of their products, wages, electricity combined with a customer base which can no longer afford to spend on eating out, especially mid-range to pricy eating out is making it impossible for many outlets to survive.

It’s no wonder a Google search on ‘café closures Australia 2024’ provides a page or more reporting on closure rates throughout the food industry. And the same applies to other sectors, such as builders, for example.

So, is there anything that can be done?

It’s tough and in many cases the answer will be no – it’s already too late and too difficult.

Can franchises fare better?

But after so many years in the franchising industry, we wonder if there is something that can be done to at least provide for elegant survival. And yes, we do realise that following all the changes business has had to make through and following COVID, another ‘pivot’ will be as welcome as a shot in the head.

The thing is though, reports from those in the industry show there are two food sectors still performing – albeit with difficult issues to face – very small outlets owner run with barely any staff and those that are part of a bigger restaurant group or franchise.

So, the question is why?

Very small restaurants surviving with no staff are very draining and not the way to go unless they can be managed in a way that preserves quality of life for the owner/operators – limiting working hours to something reasonable.

The big groups, especially the good, well managed franchise groups though, have some operating traits which are interesting and worth investigating further.

1. The franchisor owns and looks after the brand 

The brand is what the franchisor owns and licences to franchisees for the term of their franchise. Good franchisors spend a lot of time, training and supporting their franchisees to ensure brand consistency across the whole group. They also make sure the brand is kept up to date and appealing to the market – any changes are introduced across the whole group. Think of the big well-known groups. Maccas looks the same – kept up to date wherever it is located even though each outlet is under the management of many different owners. The same goes for Grill’d, Soul Origin, Muffin Break and countless other franchise groups.

Keep your brand singing and in line with market demands.

2. Modern franchisors manage most of the marketing

In this digital world, the days of local area marketing managed by each franchisee have almost gone. Sure, there is often some in some local areas, but digital traffic generation is handled by head office through AdWords, social media and more. But franchisees pay for this work to be done through monthly fees so, every franchisor knows they absolutely must be on top of the game or discontent will engulf them.

The result is, when the going gets tough then, the ad spend is increased and a very careful eye is kept on what is working and what needs to be changed. Marketing is definitely not an area to cut back on, it’s an area to nurture with care.

3. The franchisor keeps a close eye on the stats and the customers

Good franchisors know not only the sales figures of each outlet, but they also know when and what each outlet sells most of and how much, they know where the customers come from and how many kids they have, how much of the turnover is due to takeaway as opposed to eat in and when the ups and downs occur.

4. So, a good franchisor knows when it’s time to introduce change to the chain to meet a changing market

It’s no accident that Maccas introduced McCafe all those years ago. They realised that to keep trading in some areas they needed to produce something to keep Mum happy too – that decent coffee was essential to keep the burgers and Happy Meals going.

5. A good franchisor has good relationships with the franchisees and can introduce the changes with elegance

Not easy to do. Each franchisee is a business owner in their own right so making changes across the board won’t appeal to everyone. But handled with care and empathy, keeping customer happiness top of mind means changes can be introduced without upsetting brand consistency.

6. Can a franchise fare better in these tough times?. The franchisor is in touch with suppliers and, with substantial trading power, can get the best supply deals around

This is a big one, good franchisors have significant buying power and don’t hesitate to use it to control their own franchisee’s woes with increasing inflation and costs in the supply chain.

So, join a franchise group or double down and control what you can

1. Know your business

So, when times get tough, franchisors have the knowledge – they pick the early warning signs things are not so good across the whole chain and start to evaluate what can be done ahead of the curve. They discuss the options with all affected knowing they can’t deal with everything but knowing every little helps.

2. Make the changes even where they hurt

Know your business, know when your customers want something different. Follow the lead they give you. If it means more bar tables and an increased share plate bar menu rather than fine dining – then do it with grace and brand consistency, giving everyone that special outing at a reduced price. Hopefully the increased trade and reduced costs in service will keep you trading through.

3. Control costs

What can you do to control the cost of goods – tricky we know but worth a look.

Can you reduce the number of staff needed to serve in a new way? By refreshing your customer sales and supply chain funnels for example.

Look at every aspect of the business to see how to be more effective you can be to give your customers your new offering at the lowest cost possible.

4. Keep the marketing going

Above all don’t drop the marketing. If anything, increase the spend here even if that hurts and push the amazing deal you have to offer with your sexy new cost-effective dining experience on offer.

In conclusion: stay 100% customer centric with every conversation you have, and every decision you make. And remember, the market suffers these shocks periodically – and comes out of it. Do all you can that’s within your control … and be patient while the market turns round as it always does. Then you’ll be ready to fire up and benefit from all your hard work.

Brian Keen has been involved in the franchise industry for more than 30 years and Prue has been involved with systems and business for as long. Together they founded Franchise Simply, Systems2Grow and Microloan Foundation Australia. Brian’s on-the-ground business experience as a multi-unit franchisee, franchisor and consultant helping many of the big names create their own franchise systems and growth over the years combined with Prue’s structured approach has been fed into Franchise Simply, helping today’s SMEs and Franchisors grow their business by franchising.

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